Why isn’t every small California business an LLC (Limited Liability Corporation)?  A Limited Liability Corporation or LLC may be the right entity for most solo owner or small business and service industry companies.

However, simply assuming that an LLC is the right choice and moving forward without effective legal counsel can and will cost you a lot of money down the road.  Even in the cases where the LLC is the right entity, there are registration and compliance issues you will need to understand and follow.  The LLC exists to protect your private assets (such as your home and bank account) as well as your spouse from any liabilities that might arise out of your business efforts.  Failure to observe the laws relating to LLC compliance eliminates the protection of the LLC (known in legal terms as the “corporate veil”) opening everything you own as an asset that a creditor can use to resolve a business debt.

Why isn’t every small California business an LLC from the outset?  What if you generate a high income?  A solo business person who generates low to mid 6 figure income (or higher) will be able to save a substantial amount on taxes by considering either an S Corporation or a C Corporation.  If you intend to bring investors in down the road, or if your company may grow to employ people in multiple locations across the US (or around the world) an LLC is probably not the right decision at the outset.

The Watkins Firm has been serving San Diego businesses and startups for decades, and several of my family members own and operate small businesses.  We know first hand what it takes to run a successful business, to meet payroll and comply with California’s complex employer responsibilities.

Pro-Tip: “Well, the entity selection discussion should include the company documents, if you choose a corporation, not all corporations are the same. If you choose a limited liability company, an S corporation or C Corporation, if you choose a partnership, a limited liability partnership, there’s all types of different variations. And then you can get into the nitty gritty based on your profession and all the regs and all the uh, professional license requirements and all of the, depending on the kind of company, their resale license and permits. There’s all kinds of little things that your old business lawyer knows about  and can tell you about from the get go, as opposed to you finding out after you’ve made a few mistakes, or become involved in a dispute or lawsuit.

The whole reason to have an entity is to separate you the person from the legal person of the business. This is one of the most important issues of a corporate entity, especially if you’re going to be doing some big business, you’re going to have big liability or you could personally not have big liability. And also you can have an entity that can be sold. You can have an entity that can be sold in whole or bring in investors. If you do everything right, you get to do all these things. If you get a big opportunity and you didn’t set your company up correctly, then you can’t have your friend with an extra million dollars invest easily in the business you are building. You’ve got to rewrite everything and you’ve got to restructure everything and you’ve got to hope you didn’t make any mistakes. And all of a sudden that opportunity doesn’t look so like a good deal. And that person who’s got the investment money will say, ‘well, this person’s not professional. This person’s not really serious about doing business.’ And you’ll miss it all because you didn’t pay attention in the beginning when you formed a company.” – Dan Watkins, Founding Partner

The selection of a business entity is a critical business decision that will affect your short and long term success.  If you want to know the answer to the question “Why isn’t every small San Diego business an LLC?” we invite you to review our podcast Episode 34 – Business Formation as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.

We will discuss your business goals, where you’ve been and where you’re headed.  We will develop solid strategy and provide a budget for you in advance of doing the work.  We want to be much more than an attorney on a transaction or two, we want to become a valued and trusted business advisor that helps you to accomplish your business goals and dreams.